- A combination of factors helps the USD / JPY regain positive traction on Monday.
- Risk appetite weighs on safe-haven JPY, Fed’s optimistic expectations benefit USD.
- Investors could refrain from opening aggressive positions ahead of the FOMC and BoJ meetings this week.
The pair USD/JPY moves higher during the European session on Monday, staying at the upper end of its intraday trading range around the 113.65 level.
The pair attracted new buying near the 113.25 region on Monday and was supported by a combination of factors. The decreased concerns about the potential economic consequences of the spread of the new variant of the coronavirus Omicron continued to support optimistic market sentiment. This, in turn, weighed on the safe-haven Japanese yen and acted as a tailwind for the USD / JPY pair.
On the other hand, the US dollar drew some support from strong expectations that the Fed would adopt a more aggressive policy response to contain stubbornly high inflation. Market expectations were reaffirmed after Friday’s US CPI report, which showed the annual rate accelerated to the highest level since 1982 and the underlying reading posted the steepest rise since mid-1991.
A stronger USD was seen as another factor that provided a modest boost to the USD / JPY pair. That said, a softer tone around US Treasury yields could prevent the pair’s bulls from opening aggressive positions. Investors may also prefer to stay on the sidelines ahead of this week’s central bank events: the FOMC decision on Wednesday and the BoJ meeting on Thursday.
It is widely expected that the Fed accelerates the pace of reduction of bond purchases and sets the stage for an interest rate hike earlier than expected. It is worth remembering that markets have been pricing in the possibility of an eventual rate hike in May 2022. Therefore, the outcome will play a key role in influencing the USD and providing new directional momentum to the USD pair. / JPY.
From a technical perspective, the USD / JPY has been swinging within a tight range for the past week. In the absence of major economic releases, this makes it prudent to wait for a strong continuation buy before positioning for any further bullish moves. However, intraday price action favors the bulls.
USD / JPY technical levels
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